Investors Cast Aside Volatility, Bet on Stocks Rallying
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Your Money Briefing. Money and market stories from the Wall Street Journal. I'm J.R. Whalen in New York. The last six months have been a bit zigzaggy for Wall Street, but some investors see a straight line upward ahead. We'll explain in a moment. First, these money headlines. Unfilled jobs are piling up in the transportation, retail, and business services sectors as workers become scarce in the fast-growing economy.
What market backdrop explains investors' renewed confidence in stocks?
The number of unfilled jobs in transportation, warehousing, and utilities combined grew by 109,000 over the past year to 298,000. That's a 58% increase, the largest growth rate of about 20 broad groupings tracked by the Labor Department. Growing consumer spending and manufacturing output are supporting demand for transportation and warehouse workers, but some are opting for jobs in other areas. Trucking companies, for example, compete for workers with construction and energy jobs that often pay better or offer more time at home. And the tax overhaul enacted by Congress last year creates a special 20% deduction for small business owners. And on Wednesday, the Treasury Department clarified who exactly is eligible for the benefit.
Owners of closely held companies will be able to claim the new tax benefit even if a small portion of their income doesn't qualify for the favorable treatment. But high-earning businesses that split up their business, known as crack and pack, could run into roadblocks. That's where business owners reclassify and recategorize activities in an effort to get as much income as possible taxed at a lower rate.
Which labor and tax headlines are influencing investor sentiment right now?
Businesses won't be able to claim the benefit for enterprises that are at least 50% controlled by a law firm, for example, or other specified service business and provide most of its services back to that firm. For more on the story, check out WSJ.com. This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. It's been a rough ride for Wall Street and investors the past few months with market volatility and dramatic swings capturing the headlines. But some traders are unfazed and they see big gains ahead. And Wall Street Journal reporter Gunjan Banerjee joins us to discuss. So, Gunjan, this really isn't wishful thinking on the part of these investors. It turns out after months of ups and downs, U.S.
stock benchmarks aren't far from hitting fresh records.
Exactly. The Nasdaq Composite and S&P 500 closed at their second highest levels in history on August 7th. So major indexes have waffled between gains and losses. They have overall risen in recent weeks.
And we're seeing this optimism in the accumulation of call options on the S&P 500. Can you just briefly explain why an investor does that?
Sure. Basically, call options are just contracts that give investors the right, but not the obligation, to buy shares later in time at a designated price. So they can be used by investors to make bullish directional bets or hedge their portfolios. For example, an investor might buy a call option tied to the S&P 500, taking another leg higher, at which point they could exercise these contracts or just profit from the change in price in the secondary market.
So they're really putting their money where their mouth is. They really see some optimism and upward trend ahead.
In the options market, a pretty popular metric is how expensive these kind of bullish options are relative to bearish options. And recently, the bullish options have grown more expensive than the bearish options. So that means that people are eyeing upside rather than trying to hedge their portfolios potentially.
And the latest batch of corporate earnings, as well as the effects of the tax cut, that's contributed to all this optimism as well.
Yes, you know, it's been a strong earnings season with more than two-thirds of corporations beating revenue expectations, according to FactSet. And though risks to the markets definitely remain, analysts have said that lower tax rates have also driven profits at American corporations higher in the second quarter.
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